Hedgies Flee Morgan, Calpers Tries to Stem Short Tide

By Tiernan Ray

The spiraling downward of financial confidence has sprouted up in various areas this afternoon. Bloomberg this afternoon reports that hedge funds making up “less than 10%” of Morgan Stanley’s prime brokerage balance are withdrawing their assets from the firm, or plan to do so. The article cites “a person with direct knowledge of the matter.” The article notes that Deutsche Bank AG (DB), Citigroup (C), Credit Suisse Group AG (CS) and JPMorgan Chase (JPM) “are picking up Morgan Stanley’s clients.” The threat to hedge funds’ assets is real, the article suggests: Lehman has frozen “billions” in hedge fund money inside its prime brokerage unit since it filed bankruptcy on Monday.

Pension funds try and strangle short sales
But some are fighting the good fight, apparently. Dow Jones Newswires is reporting that the California Public Employees Retirement System (CALPERS) is “no longer lending out shares” of Goldman Sachs (GS) and Morgan Stanley (MS), hoping to “limit short-selling” of the stocks. The wire quotes Clark McKinley, a CALPERS spokesperson, as saying “We don’t want to inadvertently contribute to the instability of these companies or the market.” DJ notes that Cali’s teachers pension system yesterday stopped lending shares of both stocks, and sent a letter to 60 of its fellow pension funds urging them not to lend.

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